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Operations Management: Financial Dimensions

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To describe asset management, including the strategic profit model, other key ... Figure 12.2 Rebuilding Kmart. 12-11. Budgeting ... – PowerPoint PPT presentation

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Title: Operations Management: Financial Dimensions


1
Chapter 12
  • Operations Management Financial Dimensions

RETAIL MANAGEMENT A STRATEGIC APPROACH, 9th
Edition
BERMAN EVANS
2
Chapter Objectives
  • To define operations management
  • To discuss profit planning
  • To describe asset management, including the
    strategic profit model, other key business
    ratios, and financial trends in retailing
  • To look at retail budgeting
  • To examine resource allocation

3
Profit Planning
  • Profit-and-loss (income) statement
  • Summary of a retailers revenues and expenses
    over a given period of time
  • Review of overall and specific revenues and costs
    for similar periods and profitability

4
Major Components of a Profit-and-Loss Statement
  • Net Sales
  • Cost of Goods Sold
  • Gross Profit (Margin)
  • Operating Expenses
  • Taxes
  • Net Profit After Taxes

5
Asset Management
  • The Balance Sheet
  • Assets
  • Liabilities
  • Net Worth
  • Net Profit Margin
  • Asset Turnover
  • Return on Assets
  • Financial Leverage

6
Figure 12.1 The Strategic Profit Model
7
Other Key Business Ratios
  • Quick Ratio
  • Current Ratio
  • Collection Period
  • Accounts Payable to Net Sales
  • Overall Gross Profit

8
Financial Trends in Retailing
  • Slow growth in U.S. economy
  • Funding sources
  • Mergers, consolidations, spinoffs
  • Bankruptcies and liquidations
  • Questionable accounting and financial reporting
    practices

9
Funding Sources
  • Mortgage refinance (due to low interest rates)
  • REIT (retail-estate investment trust) to fund
    construction
  • Company dedicated to owning and operating
    income-producing real estate
  • Initial public offering (IPO)

10
Figure 12.2 Rebuilding Kmart
11
Budgeting
  • Budgeting outlines a retailers planned
    expenditures for a given time based on expected
    performance
  • Costs are linked to satisfying target market,
    employee, and management goals

12
Figure 12.3 The Retail Budgeting Process
13
Budget Benefits
  • Expenditures are related to expected performance
  • Costs can be adjusted as goals are revised
  • Resources are allocated to the right areas
  • Spending is coordinated
  • Planning is structured and integrated
  • Cost standards are set
  • Expenditures are monitored during a budget cycle
  • Planned budgets versus actual budgets can be
    compared
  • Costs/performance can be compared with industry
    averages

14
Preliminary Budgeting Decisions
  • Specify budgeting authority
  • Define time frame
  • Determine budgeting frequency
  • Establish cost categories
  • Set level of detail
  • Prescribe budget flexibility

15
Cost Categories
  • Capital expenditures
  • Fixed costs
  • Direct costs
  • Natural account expenses

16
Ongoing Budgeting Process
  • Set goals
  • Specify performance standards
  • Plan expenditures in terms of performance goals
  • Make actual expenditures
  • Monitor results
  • Adjust budget

17
Resource Allocation
  • Capital Expenditures
  • Long-term investments in fixed assets
  • Operating Expenditures
  • Short-term selling and administrative costs in
    running a business

18
Enhancing Productivity
  • A firm can improve employee performance, sales
    per foot of space, and other factors by upgrading
    training programs, increasing advertising, etc.
  • It can reduce costs by automating, having
    suppliers do certain tasks, etc.

19
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